Proposed Amendments to Chicago Board of Trade Soybean Oil Futures Contract Regarding Locational Price Differentials, Maximum Limit on the Delivery Capacity That May Be Registered, and Allocation of Responsibility for Payment of Switching and/or Freight Costs

COMMODITY FUTURES TRADING COMMISSION

Proposed Amendments to Chicago Board of Trade Soybean Oil Futures

Contract Regarding Locational Price Differentials, Maximum Limit on the

Delivery Capacity That May Be Registered, and Allocation of

Responsibility for Payment of Switching and/or Freight Costs

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of availability of proposed amendments.

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SUMMARY: The Chicago Board of Trade (CBT or Exchange) has proposed

amendments to its soybean oil futures contract. The proposed amendments

were submitted under the Commission's 45-day Fast Track procedures

which provide that, absent any contrary action by the Commission, the

proposed amendments may be deemed approved 45 days after the

Commission's receipt of the proposals. The Acting Director of the

Division of Economic Analysis (Division) of the Commission, acting

pursuant to the authority delegated by Commission Regulation 140.96,

has determined that publication of the proposals for comment is in the

public interest, will assist the Commission in considering the views of

interested persons, and is consistent with the purpose of the Commodity

Exchange Act.

DATES: Comments must be received on or before February 10, 1999.

ADDRESSES: Interested persons should submit their views and comments to

Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three

Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. In

addition, comments may be sent by facsimile transmission to facsimile

number (202) 418-5521, or by electronic mail to [email protected].

Reference should be made to the proposed amendments to the CBT soybean

oil futures contract.

FOR FURTHER INFORMATION CONTACT: Please contact John Bird of the

Division of Economic Analysis, Commodity Futures Trading Commission,

Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581,

telephone (202) 418-5274. Facsimile number: (202) 418-5527. Electronic

mail: [email protected].

SUPPLEMENTARY INFORMATION: The existing terms of the soybean oil

futures contract provide for the delivery of warehouse receipts

representing 60,000 pounds of crude soybean oil in store at CBT-

approved (regular) delivery facilities. Regular delivery facilities

must be located within a prescribed area consisting of all, or portions

of, nine mid-western states of the U.S. The futures contract currently

provides for delivery at par at regular delivery facilities located

within the Illinois Territory (which consists of that portion of the

state of Illinois located north of latitude 38 deg.00'N.) and at

specified locational price differentials at regular delivery facilities

located within four other specified delivery territories within the

contract's delivery area. The contract's current terms also provide for

the adjustment of the locational price differentials annually for each

of the four-non par territories. The annual adjustments are based on

the ratio of the average number of outstanding registered warehouse

receipts to the soybean crushing capacity for all facilities in the

particular territory relative to the ratio of the number of outstanding

registered warehouse receipts to soybean crushing capacity for all

facilities in the other four delivery territories combined. The

contract currently provides that the locational price differential for

a given territory may be adjusted by a maximum of 10 cents per

hundredweight per year.

The futures contract's existing terms require that the CBT approve

the storage capacity eligible for delivery at each individual regular

delivery facility. Currently, regular delivery facility operators may

deliver soybean oil warehouse receipts equivalent to the maximum CBT-

approved storage capacity for each of their individual warehouses. Upon

surrender of a warehouse receipt, the delivery receiver may direct that

the delivery soybean oil be loaded into railcars or trucks. The

receiver is obligated to arrange for, and to pay all costs of,

transportation of soybean oil from the delivery facility.

The primary proposed amendments will make the following changes:

(1) The maximum yearly adjustment to the price differential applicable

to delivery territories (other than the Illinois par territory) will be

increased to 20 cents per hundredweight; (2) the futures delivery

capacity (the maximum number of warehouse receipts that any delivery

facility may have outstanding at any time) of each regular delivery

facility will be limited to 30 times the facility's registered daily

load-out rate and (3) operators of regular delivery facilities not

located on Class I railroads will be required to pay switching and/or

freight costs to the nearest Class I railroad interchange point, if

requested in writing by the taker of delivery.

The CBT intends to implement the proposed amendments to newly

listed contract months, commencing with the January 2000 contract

month. The Exchange has listed for trading the January, July, October

and December 2000 contract months with asterisks indicating that

proposed amendments will be applied to these contract months, pending

approval by the Commission.

In support of the proposed amendments, the CBT stated that:

The purpose of the proposed amendments is to improve the pricing

accuracy and hedging effectiveness of the soybean oil futures

contract. This will be achieved by increasing the amount by which

territorial delivery differentials can change each year, improving

access to delivery stocks for takers

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of delivery and compensating takers of delivery at facilities served

by non-Class I railroads for the costs of moving the oil to a Class

I railroad.

The CBT further submits that:

The proposed doubling of the maximum annual adjustment in

delivery differentials will help ensure that the delivery

differentials between territories reflect true cash market

differentials. The proposal to limit delivery capacity to 30 times

the daily load-out capacity for each regular facility will reduce

the period of time over which load-out can occur and give takers of

delivery quicker access to delivery stocks. Implementation of the

new regulation requiring operators of delivery facilities which are

not located on Class I railroads to pay the switching and/or freight

costs for making the oil available on the nearest Class I railroad

will improve the arbitrage process of the delivery system and

facilitate convergence.

Commenters are requested to address the extent to which the

proposed amendments reflect cash market practices or conditions.

Specifically, will the proposed changes to the annual locational price

differential adjustment allow for better conformity with prevailing

cash market price differences between delivery territories. Also, will

the proposed changes to the rail delivery procedures better reflect the

relative value of soybean oil stored in facilities located on Class I

railroads relative to soybean oil stored in facilities located on non-

Class I railroads. In addition, commenters are requested to assess the

overall effect of the proposed amendments on the supply of soybean oil

likely to be available for delivery on the contract and whether the

proposed amendments will have any effect on the futures contract's

susceptibility to price manipulation or distortion.

Copies of the proposed amendments will be available for inspection

at the Office of the Secretariat, Commodity Futures Trading Commission,

Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

Copies of the proposed amendments can be obtained through the Office of

the Secretariat by mail at the above address, by phone at (202) 418-

5100, or via the Internet on the CFTC website at [email protected].

Other materials submitted by the CBT in support of the proposal may

be available upon request pursuant to the Freedom of Information Act (5

U.S.C. 552) and the Commission's regulations thereunder (17 CFR part

145 (1987)), except to the extent they are entitled to confidential

treatment as set forth in 17 CFR 145.5 and 145.9. Requests for copies

of such materials should be made to the FOI, Privacy and Sunshine Act

Compliance Staff of the Office of Secretariat at the Commission's

headquarters in accordance with 17 CFR 145.7 and 145.8.

Any person interested in submitting written data, views or

arguments on the proposed amendments, or with respect to other

materials submitted by the CBT, should send such comments to Jean A.

Webb, Secretary, Commodity Futures Trading Commission, Three Lafayette

Centre, 1155 21st Street NW, Washington, DC 20581 by the specified

date.

Issued in Washington, DC, on January 4, 1999.

John R. Mielke,

Acting Director.

[FR Doc. 99-514 Filed 1-8-99; 8:45 am]

BILLING CODE 6351-01-M